This story first appeared in DNA Money edition on Thursday May 26, 2011.
Banks seem no longer interested in financing films, an area they had ventured into almost a decade ago. Indeed, the lenders appear to be in the process of reducing their exposure to the business in view of the uncertainty involved in repayment of loans. For one, IDBI Bank, one of the more active players, has decided to go slow. The bank did not fund any movie last fiscal. At the end of March 2010, movie financing formed a very small part of its portfolio at around Rs200-250 crore, down from Rs250-300 crore at the end of March 2009.
“Earlier, we used to finance many movies. But now we are in a consolidation phase. We are reviewing the financials and will want to see how things move,” said Viney Kumar, executive director, IDBI Bank.
“IDBI Bank might have decided to slow down in film financing because they just do not want to focus on only volumes, they want profitability as well,” said Chaitra Bhat, banking analyst, LKP Securities.
The Export-Import Bank of India, or Exim Bank, which had financed blockbusters like Veer Zaara, Dhoom and Dhoom-2, has also curtailed its exposure to this business. The bank, which finances films with the objective of boosting export earnings — films which promote India as a country and its trade — currently has a film financing portfolio of less than Rs200 crore.
“Exim Bank has been given a mandate by the government for financing various export-oriented businesses. We look at opportunities in the film business and lend to filmmakers as per our set parameters,” said TCA Ranganathan, chairman and managing director, Exim Bank.
Bank loans for making films are typically for 1-2 years. The interest rate charged is about 15% per annum — around 2% higher than on other loans — and the repayment period is up to 18 months.
But why are the banks shying away from films?
IDBI Bank’s Kumar cites a paradigm shift in distribution of movies. “Earlier, there was a system of minimum guarantee under which the producer used to start discharging the liability to the lender (bank) as the distributor used to give a minimum guarantee payment to the producer. In such a scenario, the loan given by the lender would have got repaid irrespective of the movie’s performance at the box office. Now the system of minimum guarantee is not there.”
Bobby Bedi, managing director, Kaleidoscope Entertainment Pvt Ltd, also agrees that the way films are made and distributed has changed, impacting the involvement of banks. “I’d say it’s a mixed bag when it comes to film funding from banks. IDBI Bank certainly has reduced its exposure to film financing. I believe they have had some bad experience and hence the management’s decision to relook at funding filmmakers. Exim has been very selective in its approach and continues with the philosophy of funding film projects with global appeal and potential to be exported out of India. Having said that, there are a few others, like Union Bank, which are keen on getting into this space,” said Bedi.
The film fraternity feels IDBI Bank lost money because it did not stick to set structures. “They did not follow the structures and hence lost money. As a result, the management has lost confidence in the business and hence wants to stay away,” said a film producer, requesting not to be identified.
Bankers bring up yet other issues.
“Both filmmakers and bankers have difficulty in predicting the success of movies,” said Karan Ahluwalia, executive vice-president and country head (media, entertainment, luxury and sports banking group), Yes Bank. “From a banking perspective, the fragmented nature of production houses needs to be addressed since a credible track record, sound balance sheet and good corporate governance are key enablers of organised funding as well as other innovative financing products.”
Yes Bank had financed Break Ke Baad and a few other movies last fiscal.
Industry experts, though, rule out any long-term impact of banks curtailing their exposure to films.
“The quantum of bank loan in movie financing was never very high. It was just one source of finance. There are many corporate, which are into film financing, and they will continue to fund films,” said Rajesh Jain, executive director and head of media and entertainment, KPMG (India).
Kaleidoscope’s Bedi pegs the proportion of bank funding of films at 15-20%. “The balance is still sourced from the private/ individual investors. Of late, we have seen participation from the corporate sector as well as film-focused funds, besides other avenues like studios including Fox-Star and the like,” he said.
On steps being taken by the film fraternity to encourage bank participation, Bedi said banks need some extent of handholding when it comes to film financing. “There are certain aspects about film financing that need be understood clearly and the industry body (Ficci Frames) is looking at taking some initiatives in that direction. We want to rebuild their confidence and bring them back into funding film projects,” he said.
Bedi, former chairman and member of the entertainment committee at Ficci Frames, said the industry body is looking to hold a meeting with top officials of leading banks sometime soon to discuss the subject and work out a solution.
My colleague Neelasri Barman is the lead writer of this story.
Banks seem no longer interested in financing films, an area they had ventured into almost a decade ago. Indeed, the lenders appear to be in the process of reducing their exposure to the business in view of the uncertainty involved in repayment of loans. For one, IDBI Bank, one of the more active players, has decided to go slow. The bank did not fund any movie last fiscal. At the end of March 2010, movie financing formed a very small part of its portfolio at around Rs200-250 crore, down from Rs250-300 crore at the end of March 2009.
“Earlier, we used to finance many movies. But now we are in a consolidation phase. We are reviewing the financials and will want to see how things move,” said Viney Kumar, executive director, IDBI Bank.
“IDBI Bank might have decided to slow down in film financing because they just do not want to focus on only volumes, they want profitability as well,” said Chaitra Bhat, banking analyst, LKP Securities.
The Export-Import Bank of India, or Exim Bank, which had financed blockbusters like Veer Zaara, Dhoom and Dhoom-2, has also curtailed its exposure to this business. The bank, which finances films with the objective of boosting export earnings — films which promote India as a country and its trade — currently has a film financing portfolio of less than Rs200 crore.
“Exim Bank has been given a mandate by the government for financing various export-oriented businesses. We look at opportunities in the film business and lend to filmmakers as per our set parameters,” said TCA Ranganathan, chairman and managing director, Exim Bank.
Bank loans for making films are typically for 1-2 years. The interest rate charged is about 15% per annum — around 2% higher than on other loans — and the repayment period is up to 18 months.
But why are the banks shying away from films?
IDBI Bank’s Kumar cites a paradigm shift in distribution of movies. “Earlier, there was a system of minimum guarantee under which the producer used to start discharging the liability to the lender (bank) as the distributor used to give a minimum guarantee payment to the producer. In such a scenario, the loan given by the lender would have got repaid irrespective of the movie’s performance at the box office. Now the system of minimum guarantee is not there.”
Bobby Bedi, managing director, Kaleidoscope Entertainment Pvt Ltd, also agrees that the way films are made and distributed has changed, impacting the involvement of banks. “I’d say it’s a mixed bag when it comes to film funding from banks. IDBI Bank certainly has reduced its exposure to film financing. I believe they have had some bad experience and hence the management’s decision to relook at funding filmmakers. Exim has been very selective in its approach and continues with the philosophy of funding film projects with global appeal and potential to be exported out of India. Having said that, there are a few others, like Union Bank, which are keen on getting into this space,” said Bedi.
The film fraternity feels IDBI Bank lost money because it did not stick to set structures. “They did not follow the structures and hence lost money. As a result, the management has lost confidence in the business and hence wants to stay away,” said a film producer, requesting not to be identified.
Bankers bring up yet other issues.
“Both filmmakers and bankers have difficulty in predicting the success of movies,” said Karan Ahluwalia, executive vice-president and country head (media, entertainment, luxury and sports banking group), Yes Bank. “From a banking perspective, the fragmented nature of production houses needs to be addressed since a credible track record, sound balance sheet and good corporate governance are key enablers of organised funding as well as other innovative financing products.”
Yes Bank had financed Break Ke Baad and a few other movies last fiscal.
Industry experts, though, rule out any long-term impact of banks curtailing their exposure to films.
“The quantum of bank loan in movie financing was never very high. It was just one source of finance. There are many corporate, which are into film financing, and they will continue to fund films,” said Rajesh Jain, executive director and head of media and entertainment, KPMG (India).
Kaleidoscope’s Bedi pegs the proportion of bank funding of films at 15-20%. “The balance is still sourced from the private/ individual investors. Of late, we have seen participation from the corporate sector as well as film-focused funds, besides other avenues like studios including Fox-Star and the like,” he said.
On steps being taken by the film fraternity to encourage bank participation, Bedi said banks need some extent of handholding when it comes to film financing. “There are certain aspects about film financing that need be understood clearly and the industry body (Ficci Frames) is looking at taking some initiatives in that direction. We want to rebuild their confidence and bring them back into funding film projects,” he said.
Bedi, former chairman and member of the entertainment committee at Ficci Frames, said the industry body is looking to hold a meeting with top officials of leading banks sometime soon to discuss the subject and work out a solution.
My colleague Neelasri Barman is the lead writer of this story.
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